Personal Finance Garman/Forgue Tenth Edition Chapter 5: Managing Checking and Savings Accounts PPT slide program prepared by Amy Forgue and Ray Forgue.

Introduction Monetary assets = Cash and low-risk, near-cash items that can quickly be converted into cash. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years In the next five years : 1. Use a free, interest-earning checking account for your day-to-day spending needs. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years 2. Start now to build an emergency fund sufficient to cover three months of living expenses. 3. Use a pay-yourself-first approach as you begin to build other savings through high-interest accounts. Copyright ©Cengage Learning. All rights reserved.

Your Next Five Years 4. Use investment vehicles for wants that will not occur until five or more years in the future. 5. Use all your checking and savings accounts appropriately by never overdrawing the accounts and by reconciling them monthly. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #1 Identify the tools of monetary asset management and the types of financial services firms that provide those tools. Copyright ©Cengage Learning. All rights reserved.

Monetary Asset Management Monetary asset management encompasses how you handle all of your monetary assets, including cash on hand, checking accounts, savings accounts and certificates of deposit, and money market accounts. The goals are liquidity and safety with maximized earnings Copyright ©Cengage Learning. All rights reserved.

Monetary Asset Management The Three Tools of Monetary Asset Management: Low-cost, interest-earning checking accounts Interest-earning savings accounts Money market accounts Copyright ©Cengage Learning. All rights reserved. 5 - 8

Figure 5.1: Three Tools of Monetary Asset Management Copyright ©Cengage Learning. All rights reserved.

Who provides monetary asset management services? Financial Services Industry: Companies that provide monetary asset management and other services. Copyright ©Cengage Learning. All rights reserved.

Depository Institutions Commercial Banks Insured by Bank Insurance Fund (or BIF) of the FDIC Savings Banks (or S&Ls) Insured by Savings Association Insurance Fund (or SAIF) of the FDIC Copyright ©Cengage Learning. All rights reserved.

Depository Institutions Mutual Savings Banks (or MSB) Insured by the FDIC’s BIF Credit Union (or CU) Insured by the National Credit Union Share Insurance Fund (or NCUSIF) Copyright ©Cengage Learning. All rights reserved.

Deposit Insurance Deposit Insurance is a real plus. The maximum insurance on all single-ownership (individual) accounts (held in your name only) is $250,000. The maximum insurance on all joint accounts (accounts held with other individuals) is $250,000. Copyright ©Cengage Learning. All rights reserved.

Other Financial Service Providers Mutual Funds Stock Brokerage Firms Insurance Companies Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.1 Identify the primary goals of monetary asset management. Explain the circumstances when it would be appropriate to have funds in a checking account, a savings account, or in investments. Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.1 Describe the primary differences between depository institutions and other financial services providers. Describe your insurance protections when you have funds on deposit in a depository institution. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #2 Earn interest and pay no or low fees on your checking accounts. Copyright ©Cengage Learning. All rights reserved. 5 - 17

Tool #1: Interest-Earning Checking Accounts Checking account are accessed through Checks Debit (or Check) Cards Electronic transfers Copyright ©Cengage Learning. All rights reserved.

Tool #1: Interest-Earning Checking Accounts Types of checking accounts: Interest-Earning Checking Account [or Negotiable Order of Withdrawal (NOW) Account] Tiered Interest Lifeline Banking Account Copyright ©Cengage Learning. All rights reserved.

When You Write a Check Cleared Substitute Check Stop-Payment Order Copyright ©Cengage Learning. All rights reserved.

Payment Instruments for Special Needs Traveler’s Checks Money Orders Certified Check Cashier’s Check Copyright ©Cengage Learning. All rights reserved.

Endorse Your Checks Properly Bank Endorsement Special Endorsement Restrictive Endorsement Copyright ©Cengage Learning. All rights reserved.

Protect Yourself from Bad Check Fees Automatic Funds Transfer Agreement Automatic Overdraft Loan Agreement Courtesy Overdraft/Bounce Protection Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.2 Distinguish between an interest-paying checking account and a lifeline account. What is meant by free checking? List three checking account fees or penalties that you could easily avoid by using your account properly. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #3 Make the best use of the benefits of savings accounts. Copyright ©Cengage Learning. All rights reserved. 5 - 25

Tool #2: Savings Accounts Time Deposits Copyright ©Cengage Learning. All rights reserved.

Tool #2: Savings Accounts Statement Savings Account (or Passbook Savings Account): Permit frequent deposits or withdrawals of funds. Copyright ©Cengage Learning. All rights reserved.

Tool #2: Savings Accounts Certificates of Deposit (or CDs) Variable-Rate Certificates of Deposit (or Adjustable-Rate CDs) Brokered Certificates of Deposit Copyright ©Cengage Learning. All rights reserved.

Tool #2: Savings Accounts How to save: “Pay Yourself First” Saving is not glamorous; slow and steady wins the race! Copyright ©Cengage Learning. All rights reserved.

Tool #2: Savings Accounts Emergency fund Other savings goals can be broken down into short-term goals and monthly savings amounts. Copyright ©Cengage Learning. All rights reserved. 5 - 30

Savings Account Interest Amount of Money on Deposit Method of Determining the Balance Interest Rate Applied Annual Percentage Yield (APY) Copyright ©Cengage Learning. All rights reserved.

Savings Account Interest Frequency of compounding Average Daily Balance Method is best. Copyright ©Cengage Learning. All rights reserved.

Tax Consequences of Saving for Children’s College Put money in a Section 529 college savings plan. Put money in a Coverdell Education Savings Account (ESA). Put money for college in a custodial account. Put money in a Roth IRA. Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.3 Describe reasons to keep money in a savings account rather than a checking account. Distinguish between statement savings accounts and CDs. Explain the benefits of a pay-yourself-first approach to saving. Describe how you can use information about APY to your advantage. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #4 Explain the importance of placing excess funds in a money market account. Copyright ©Cengage Learning. All rights reserved. 5 - 35

Tool #3: Money Market Accounts Super NOW Accounts Money market deposit accounts Money market mutual funds Copyright ©Cengage Learning. All rights reserved.

Asset Management Accounts Central Asset Account (or AMA) Sweeps Copyright ©Cengage Learning. All rights reserved.

How Ownership of Accounts Is Established Individual Account Payable at Death Designation Joint Account Joint-tenancy with right of survivorship Tenancy-in-common Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.4 Explain the benefits of opening a money market account. Distinguish between a super NOW account and a money market account. Identify the feature of a depository institution accounts not available with money market mutual funds. List some benefits of an asset management account. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #5 Describe electronic money management, including your legal protections. Copyright ©Cengage Learning. All rights reserved. 5 - 40

Electronic Money Management Electronic Funds Transfers (or EFTs) ATM Transaction Fee: Payments levied each time an ATM is used. Copyright ©Cengage Learning. All rights reserved.

Consumer Protection Regulations Electronic Funds Transfer Act Disclosure Statement Periodic Statements Copyright ©Cengage Learning. All rights reserved.

Consumer Protection Regulations Fixing errors Protection for lost cards Copyright ©Cengage Learning. All rights reserved. 5 - 43

Concept Check 5.5 Distinguish among credit cards, debit cards, and a stored-value card. List the steps you should take if you find an error in your periodic statement regarding an electronic transaction. Summarize the rules that apply if you lose your ATM or debit card and it is used without your authorization. Copyright ©Cengage Learning. All rights reserved.

Learning Objective #6 Discuss your personal finances and money management more effectively with loved ones. Copyright ©Cengage Learning. All rights reserved.

The Psychology of Money Management Managing money and making financial decisions are different. People ascribe strong emotions to money. Copyright ©Cengage Learning. All rights reserved.

The Psychology of Money Management How to talk about financial matters. Get to Know Yourself Focus on Commonalties Learn to Manage Financial Disagreements Copyright ©Cengage Learning. All rights reserved.

The Psychology of Money Management Use Positive “I” Statements Be Honest and Talk Regularly Copyright ©Cengage Learning. All rights reserved. 5 - 48

How To Develop Money Sense in Children Give an Allowance Encourage Work Teach Them to Make Good Choices through Increasingly Complex Activities Talk About Family Finances with Children Be a Role Model Copyright ©Cengage Learning. All rights reserved.

Concept Check 5.6 Explain why it is difficult for many people in relationships to talk about money matters. Identify four ways you could more effectively communicate about money matters. List four things that parents can do to help their children be better money managers. Copyright ©Cengage Learning. All rights reserved.

Top 3 Financial Missteps in Managing Checking and Savings Accounts People slip up in managing checking and savings accounts when they do the following: 1. Paying high fees unnecessarily for bounce protection. Copyright ©Cengage Learning. All rights reserved.

Top 3 Financial Missteps in Managing Checking and Savings Accounts 2. Keeping too much money in a checking account where it earns very little interest. 3. Failing to reconcile their accounts on a regular basis. Copyright ©Cengage Learning. All rights reserved. 5 - 52

Do It NOW! Avoiding overdraft fees is a must. Start today by: 1. Finding out what type of overdraft protection you have, if any, on your checking accounts. Copyright ©Cengage Learning. All rights reserved.

Do It NOW! 2. Signing up for automatic funds transfer to be used first if you make an overdraft. 3. Making sure that your bank will block use of your debit card if there are insufficient funds in the account at the time of the usage. Copyright ©Cengage Learning. All rights reserved.